Abstract :
In theUnitedStatesandotherOrganisationforEconomicCo-operationandDevelopment
(OECD)countries,theexpectedreturnsonstocks,adjustedforvolatility,aremuchhigher
in recessionsthaninexpansions.Weconsiderfeasibletradingstrategiesthatbuyorsell
shortlyafterbusinesscycleturningpointsthatareidentifiableinrealtimeandinvolve
holdingperiodsofupto1year.Theobservedbusinesscyclechangesinexpectedreturns
are notspuriouslydrivenbychangesinexpectednear-termdividendgrowth.Our
findingsimplythatvalue-maximizingmanagersfacemuchhigherrisk-adjustedcostsof
capitalintheirinvestmentdecisionsduringrecessionsthanexpansions
